Written by Jim Bitterle - Managing Partner with EDSI
Are your perpetual inventory records accurate?
Inaccurate inventory records are often a root cause of many issues for companies. Some of the resulting issues include:
- Poor on-time delivery records
- High scrap rates
- Excess inventory levels
- High inventory carrying costs
- Bloated labor costs
- High expediting costs
If your company has any of these issues, assess your perpetual inventory accuracy to ensure it is not the root cause. If it is, we suggest implementing a modern, cycle counting process.
Cycle counting is a set of processes by which small amounts of inventory are counted every day. The counts are then compared against perpetual inventory records to ensure accuracy. Whenever discrepancies between cycle counts and records appear, a discrepancy analysis is completed to determine the source of error.
Often, the discrepancy analysis finds a deeper problem that requires resolution. Samples of these problems include:
- Inaccurate bills-of-materials
- Improper material handling processes and data input
- Inadequate warehousing controls
- Improper labeling from vendors
- Poor shrinkage standards
Cycle counting has little value unless it is done correctly. Following are some keys to ensuring your cycle counting processes work effectively:
- Conduct the counts daily.
- Segregate inventory into High Usage (A items), Medium Usage (B items) and Low Usage (C items) categories. We suggest counting all A items at least once every 2-4 weeks. B and C items can be counted less frequently.
- Perform discrepancy analysis immediately after the counting process stops.
- Fix root cause issues as soon as possible.
- Conduct counts before activity begins in the plant or warehouse. Counting can also occur after daily activity has ended.
- Ensure all data entry and batch processing is complete before counting.
- Set accuracy standards and track accuracy on an ongoing basis.
Inaccurate perpetual inventory records cost American companies billions of dollars every year. If you haven’t already, I suggest you assess your company’s perpetual inventory accuracy as soon as possible. If we can help in any way, please feel free to contact me at email@example.com.